OPEC+ ministers were due to meet overnight Sunday (Sydney time) to try and break the deadlock on a new output policy between Saudi Arabia and their smaller Gulf rivals, the United Arab Emirates (UAE).
Because of Covid, the meeting will be virtual (which means no one can stage a histrionic walkout and speak to the media – to quit this meeting, they will have to hit the off key on their computers).
If the meeting strikes a deal, as Reuters has suggested it will, then oil prices will bounce from last week’s sell-off which saw the biggest weekly fall in almost five months.
Reuters reported that it had been told the meeting follows reports of an unofficial deal between the two countries late last week.
Reuters said the compromise between the Saudis and UAE should be enough to produce a new production cap that will bring more oil onto the market while stopping a price/volume war like we saw in March, 2020.
As a result of the 2020 war between the Saudis and Russia, the OPEC+ group agreed record output cuts of almost 10 million barrels per day (bpd) to cope with a pandemic-induced slump in demand.
The cap was gradually eased to around 5.8 million bpd at the end of July and a new agreement was supposed to produce a lower cap for the rest of the year.
The Saudis and UAE argument over the size of the new cap and a move by the Emirates to rebase their daily production to achieve a higher daily output compared with March, 2020.
The proposed deal would have added an extra 2 million bpd to the market and extended the pact until end of 2022, a move that the Saudis objected to.
The objective of the proposal was to ease upward pressure on oil prices that have recently climbed to the highest level in more than two and a half years.
Reuters said the Saudis had agreed to Abu Dhabi’s request to have UAE’s baseline – the level from which cuts under the OPEC+ agreement on supply curbs are calculated – set at 3.65 million bpd from April 2022, up from 3.168 million. That’s a lift of half a million barrels a day from next year.
The meeting will decide on the size of the cap for the rest of the year when demand is expected to rise – though the new round of Covid Delta variant infections is looming as a threat to demand in coming months.
Ahead of that news emerging at the weekend, Brent crude settled down 12 cents at $US73.59 a barrel on Friday while in New York West Texas Intermediate (WTI) crude rose 16 cents to settle at the end of the week at $US71.81 a barrel.
West Texas Intermediate fell around 4% and for Brent crude dipped 3% in what were the largest falls for five months as nervousness about the lack of a deal on a new production cap rattled confidence.
The number of active drilling rigs in the US rose by another 5 to 484, maintaining its steady upward rise for the past year.
Drilling rigs targeting crude oil added 2 to 380, highest since April 2020, and gas rigs were up 3 to 104.
US oil stocks fell again last week and are now around 8% under the level at this time of the year for the past five years.
Estimated US oil production though was 11.4 million barrels a day last week, the highest for a year and up 300,000 bpd in the past couple of weeks.
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Gold is recovering thanks to the easing of bond yields which dipped under 1.3% on Friday while the US dollar rose (and the Aussie dollar lost ground to trade under 74 US cents).
Comex gold fell by $US14 an ounce to $US1,815 an ounce and continued falling in late trading to around $US1,812.
That still left gold up 0.2% for the week but there’s a chance that the price will slide again today with more attention focused on the rising Covid Delta infections.
Industrial metals remained well based, supported by good economic indicators in China., though China cut copper imports for a 4th month.
Tin was a clear standout as the metal reached its 2011 all-time high of $US34,000 a tonne.
Comex copper in New York finished at $US4.306 a pound, down on the day and down 0.8% for the week.
Agricultural commodities rebounded last week. Wheat was up nearly 5%, while corn rose by around 3%.
Lumber fell sharply to $US490 per thousand board feet, down from $US719 at the start of last week and more than $US1,700 earlier this year.
And iron ore prices finished the week with a small gain.
The price of 62% Fe fines delivered to northern China (and mostly from the Pilbara) averaged $US229.43 a tonne on Friday, up 66 cents on the day and 3.1% or $US6.66 over the week.
